You've Been Framed! - American Idiot

• You are ill in hospital. The surgeon informs you that he could operate. If successful the operation will cure you completely. He tells you that 95% of patients survive the operation.

What do you decide?

• You are ill in hospital. The surgeon informs you that he could operate. If successful the operation will cure you completely. He tells you that 5% of patients do not survive the operation.

How about now?

Standard economics has always assumed that people's preferences are stable. Thus the way in which questions are worded should not have an impact on what we prefer. Psychologists beg to differ.

Now, you're probably telling yourself that you're unaffected by the way the question is 'framed'. However, evidence shows that people are highly susceptible to framing effects.

More worryingly, evidence shows that doctors are equally susceptible to framing when faced with similar problems to the one above!

We are all to some extent irrational when it comes to framing effects. But never fear, there is an easy way to improve your rationality - simply reframe the problem and see if it changes your preference...

If told:

• 30 people die out of every 10,000 that undergo an operation

remind yourself that

• 99.7% survive

Remembering this should help you improve your decision making... Simples!

Recommended listening:
American Idiot by Green Day

Late To The Football - Three Lions '98

As I sat waiting for my friends in a Guildford pub, I recalled many a similar experience of my youth. For years we played football every Saturday afternoon, but we had a serious problem with punctuality.

Every week we would agree to meet at 2pm on the park, but every week people would turn up slightly later than the week before. With hindsight I can see that this was a classic case of coordination failure, with a hint of the free-rider problem. Let me explain...

Us in our heyday

There was no intrinsic problem with 2pm (it wasn't as if it was too early for us to get up). The problem was that there was a disincentive to being the first one to arrive. Waiting on your own for everyone else to turn up is not especially fun. There was an incentive to turn up just after everyone else. Turning up at the same time would have been fine, but you'd have to wait for them to put their boots on (but you didn't want to come too late or you'd miss valuable footy time).

Thus if you suspected other people would show up at 2:00pm, your optimal strategy would be to turn up at 2:01pm. Because you turned up at 2:01pm this week, the others might arrive at 2:02pm next week. Thus you can see how things quickly got out of hand. Compounding this was the teenage tendency to be late anyway, and every time you were accidentally late you would give an incentive for your mates to be later the following Saturday.

Even though it was explicitly stated each week that we would start at 2pm, by the time we were in 6th Form kick-off was usually 2:45pm or later. Occasionally there would be a punctuality push and it would be announced that we'd all turn up and start at exactly 2pm - but this only brought things back to about 2:15pm!

Stoke Park (empty)

Economists call this coordination failure. The optimal solution for society would have been all of us turning up at 2:00pm, but individual incentives meant that we failed to coordinate effectively. The only way to mitigate this would have been to create a disincentive to turning up late, but creating and implementing this would have been hard given we were just a group of football-loving mates. The free-riding was insurmountable. Coordination failure is one reason why economists sometimes advocate government intervention - if there had been a higher power somehow encouraging us to turn up on time then we could have solved the problem.


Recommended listening:
Three Lions '98 by Baddiel, Skinner, Lightning Seeds

Sailing Times - I'm A Harrier And I'm Okay

At the start of a week's sailing on the beautiful Norfolk Broads, a question occurred to me... are we rational with regards to time?

I was a leader on Harriers B - a fantastic camp for 15-18s. On the first evening on the cruise, when commanded by the Commodore, we all changed our watches to something called cruise time. Cruise time is an hour later, so at 21:45 all our time-keeping devices were changed to 22:45. The rationale behind it is that as a small fleet of yachts we need to get into moorings early each day while there is still space. So cruise time helps us be earlier. For example, we get up at 7am cruise time and are usually moored up by 5pm cruise time. This sounds a lot better than getting up at 6am every day to be in by 4pm. And because it sounds better it feels better. And because it feels better we do more at that ungodly hour of the morning. Thus cruise time works. It genuinely makes us earlier.

Admittedly there was some protest this year from one of the leaders...

Commy: I'll wake you all up at 7am tomorrow...
Matt: It's 6am!
Commy: No it's not!
Matt: You can't fool my body!

(And in fairness Matt did his very best to prove this was the case throughout the week, never knowingly getting up).

However, most of us swiftly adjusted to cruise time. We were probably better at getting up in the  morning in the mindset of it being 7am than 6am, even though it was all a trick.

According to traditional economics we, as homo economicus, should be unaffected by cruise time. We should behave just the same. It is just a simple trick - the real world time is unaffected. We are not deceived into changing our watches, we all know what we're doing and why we're doing it.

But given that we do change our behaviour when we're told that it's 7am not 6am, even when we know that is not the case, I suggest that this presents a challenge to the belief that we're all the perfectly rational homo economicus.

Recommended listening:
I'm A Harrier And I'm Okay (see verse 5)

Psychology Deception - Acceptable In The 80s

Apparently some 30-50% of psychology experiments published in top journals use deception (Hertwig and Ortmann, 2001). Why?

One reason for deceiving subjects is that it enables experimenters to create interesting situations. For example, we might want to see how people react in an emergency. Another reason is that it allows experimenters to hide the real purpose of the experiment from subjects. For example, we might want to stop people just giving the politically correct answers instead of what they really think (Nick Wilkinson, 2008).

However, the use of deception is frowned upon by economists.

The main problem is that people aren't stupid. Word gets round. Only the naive would enter a psychology experiment without the expectation of deception on the part of the experimenter. This has knock-on effects on behaviour. If you suspect you're being deceived you may just behave differently thus defeating the whole point of the experiment in the first place.

Thus there are few examples of deception in the world of experimental economics. This should mean that our results stay reliable, even if in the short term we are more limited in what we can do. In an ideal world deception would never ever be used in any experiment, but sadly there is little incentive for everyone to act for the greater good (cf. the free-rider problem).

Fully aware of the irony, I am going to end this post by saying that guruhogg has never knowingly used deception.

Recommended listening:
Acceptable In The 80s by Calvin Harris